Harvard Case - SK-II: Damage Control in China
"SK-II: Damage Control in China" Harvard business case study is written by Kineta Hung, Richard Farmer. It deals with the challenges in the field of Marketing. The case study is 21 page(s) long and it was first published on : Jan 11, 2008
At Fern Fort University, we recommend a multi-pronged approach for SK-II to repair its damaged reputation in China, regain consumer trust, and ensure long-term success. This strategy involves a combination of brand management, marketing, communication, and social responsibility initiatives, focusing on transparency, authenticity, and customer-centricity.
2. Background
This case study examines the crisis faced by SK-II, a premium skincare brand owned by P&G, in China. The brand's reputation was severely damaged by a controversial marketing campaign that sparked outrage among Chinese consumers. The campaign, featuring a video promoting the brand's 'Pitera' ingredient, was perceived as insensitive and offensive, leading to a boycott and significant financial losses for SK-II.
The main protagonists of this case study are:
- SK-II: The brand facing the reputational crisis.
- P&G: The parent company responsible for managing the crisis and implementing recovery strategies.
- Chinese Consumers: The target market deeply affected by the campaign and holding significant power in shaping the brand's future.
3. Analysis of the Case Study
SWOT Analysis:
Strengths:
- Strong brand equity and loyal customer base.
- Premium positioning and high-quality products.
- Extensive distribution network in China.
- P&G's global resources and marketing expertise.
Weaknesses:
- Damaged reputation due to the controversial campaign.
- Lack of cultural sensitivity in marketing efforts.
- Limited engagement with Chinese consumers on social media.
- Potential for further backlash from consumers.
Opportunities:
- Leverage existing brand loyalty and positive customer experiences.
- Rebuild trust through transparent communication and genuine apology.
- Engage with Chinese consumers through social media and influencer marketing.
- Focus on product innovation and cater to specific Chinese market needs.
Threats:
- Continued negative publicity and consumer boycott.
- Competition from local and international skincare brands.
- Economic downturn impacting consumer spending.
- Shifting consumer preferences and trends in the Chinese market.
PESTEL Analysis:
- Political: China's government regulations and policies on foreign brands.
- Economic: Rising disposable income and increasing demand for premium skincare products.
- Social: Growing awareness of social responsibility and ethical consumerism.
- Technological: Advancements in skincare technology and digital marketing platforms.
- Environmental: Concerns about sustainability and eco-friendly products.
- Legal: Regulations on advertising, product safety, and data privacy.
Marketing Mix (4Ps):
- Product: Focus on product innovation, quality, and efficacy, tailoring products to specific Chinese skin types and concerns.
- Price: Maintain premium pricing while offering value-added services and promotions.
- Place: Expand distribution channels, including online platforms and partnerships with key retailers.
- Promotion: Implement a multi-channel marketing strategy, emphasizing transparency, authenticity, and customer engagement.
Consumer Behavior Analysis:
- Target Market Segmentation: Identify key consumer segments within the Chinese market based on demographics, psychographics, and purchase behavior.
- Consumer Needs and Motivations: Understand the specific needs and motivations of Chinese consumers regarding skincare, focusing on factors like skin type, concerns, and brand values.
- Brand Perception: Analyze the current perception of SK-II among Chinese consumers, identifying key areas of concern and potential for improvement.
Competitive Analysis:
- Direct Competitors: Analyze the strengths and weaknesses of major competitors in the Chinese skincare market, including local and international brands.
- Competitive Advantage: Identify SK-II's unique selling proposition (USP) and how it can be leveraged to differentiate from competitors.
- Market Share and Growth: Assess SK-II's market share and potential for growth in the Chinese market.
4. Recommendations
1. Transparency and Apology:
- Issue a sincere and transparent apology to Chinese consumers, acknowledging the offense caused by the campaign and outlining steps taken to address the issue.
- Engage in open and honest communication with consumers through various channels, including social media, press releases, and public forums.
2. Rebuild Trust through Action:
- Invest in research and development to create products specifically tailored to Chinese consumer needs and preferences.
- Implement rigorous quality control measures to ensure product safety and efficacy.
- Partner with reputable Chinese organizations and influencers to demonstrate commitment to the Chinese market.
3. Engage with Chinese Consumers:
- Develop a comprehensive social media strategy, actively engaging with consumers on platforms like Weibo, WeChat, and Little Red Book.
- Utilize influencer marketing to reach target audiences and build trust through authentic endorsements.
- Host online and offline events to connect with consumers and build brand loyalty.
4. Focus on Social Responsibility:
- Support local charities and initiatives that align with SK-II's brand values.
- Promote sustainable practices throughout the supply chain and product development.
- Demonstrate commitment to ethical business practices and transparency in operations.
5. Reposition the Brand:
- Refine SK-II's brand positioning to emphasize its commitment to Chinese consumers and cultural sensitivity.
- Develop a new brand narrative that resonates with Chinese values and aspirations.
- Update marketing materials and advertising campaigns to reflect the new brand positioning.
5. Basis of Recommendations
These recommendations are based on a comprehensive analysis of the case study, considering:
- Core Competencies and Consistency with Mission: The recommendations leverage SK-II's existing strengths, such as product quality and innovation, while addressing weaknesses like cultural sensitivity and communication.
- External Customers and Internal Clients: The recommendations prioritize rebuilding trust with Chinese consumers while ensuring internal stakeholders are aligned on the new strategy.
- Competitors: The recommendations consider the competitive landscape in the Chinese skincare market and identify opportunities to differentiate SK-II.
- Attractiveness - Quantitative Measures: The recommendations aim to improve brand perception, increase market share, and drive revenue growth, ultimately improving SK-II's financial performance.
All assumptions are explicitly stated, including the need for a genuine apology, the importance of cultural sensitivity, and the potential for consumer behavior to change based on the brand's actions.
6. Conclusion
By implementing these recommendations, SK-II can effectively address the reputational crisis in China, rebuild consumer trust, and position itself for long-term success in the Chinese market. The focus on transparency, authenticity, and customer-centricity will be crucial in regaining consumer confidence and ensuring the brand's future.
7. Discussion
Alternative options not selected include:
- Ignoring the crisis: This would likely result in further damage to the brand's reputation and potential boycotts.
- Focusing solely on advertising: This would be insufficient to rebuild trust and could be perceived as insincere.
- Exiting the Chinese market: This would be a drastic measure with significant financial implications.
The recommendations involve risks, such as:
- Negative consumer reaction: Consumers may not be satisfied with the apology or the brand's actions.
- Competition: Competitors may capitalize on SK-II's weakened position.
- Economic downturn: The Chinese market may experience a slowdown, impacting consumer spending.
Key assumptions include:
- Consumers are willing to forgive: Consumers may be willing to give SK-II a second chance if the brand demonstrates genuine remorse and takes concrete steps to improve.
- The brand can adapt to the Chinese market: SK-II has the resources and expertise to develop products and marketing strategies that resonate with Chinese consumers.
- The Chinese market is still attractive: The Chinese skincare market remains a significant growth opportunity for SK-II.
8. Next Steps
Timeline:
- Immediate: Issue a public apology and initiate communication with consumers.
- Short-term (3-6 months): Implement social media strategy, engage with influencers, and launch new product initiatives.
- Medium-term (6-12 months): Refine brand positioning, update marketing materials, and expand distribution channels.
- Long-term (12+ months): Monitor consumer sentiment, adapt strategies as needed, and build a sustainable brand presence in China.
Key Milestones:
- Public apology: Within 2 weeks of the crisis.
- Social media strategy launch: Within 1 month of the crisis.
- New product launch: Within 6 months of the crisis.
- Brand repositioning campaign: Within 12 months of the crisis.
By following these recommendations and implementing a comprehensive strategy, SK-II can navigate the current crisis and emerge stronger, regaining its position as a leading skincare brand in the Chinese market.
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Case Description
In 2006, SK-II, a skin care brand, was close to becoming a billion-dollar brand for Procter and Gamble ("P&G') and China was seen as a key source of future growth and is soon to be the largest market in the world. On 14 September 2006, Chinese authorities banned the sale of some of P&G's skin care products in the SK-II line. P&G feared that public protests against these products could spread and infect the brand equity of its other products in the country. Everything that P&G tried to resolve the scandal failed, leaving the media, consumers and government feeling enraged. P&G pronounced confidence in its SK-II products in China, saying it would work with government agencies to resolve the problems, but repeatedly botched public relations and was accused of "arrogance" toward consumers. Although P&G had experience in defending its SK-II products in court due to a lawsuit the previous year, the company seemed to have learned nothing about preparing for a future crisis. P&G, one of the most trusted corporate brands in the world, was close to losing Chinese consumers' faith in SK-II and perhaps in P&G as well just by the poor way it handled the crisis. Many analysts claim that doing business in China is significantly different from doing business in developed markets. When it comes to public relations, how can the rules be so different that even experienced country managers repeatedly get it wrong? The case allows for discussion on how to respond to a public relations crisis, salvage brand equity after a disastrous incident, react to a situation and pre-empt damaging information in the media.
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